The Best DRIP Stocks: 15 No-Fee DRIP Dividend Aristocrats
How to Buy a DRIP Stock
A DRIP is a "dividend reinvestment program" that enables stockholders to automatically reinvest dividends paid by the company into the purchase of more shares of stock.The program also allows investors to purchase fractional shares of stock in the event that the dividends received aren't large enough to purchase entire shares. The advantage of DRIPs to investors is that they bypass brokerage commissions with the additional share purchases and offer accelerated portfolio growth as income is reinvested in the stock instead of being paid out as cash.
Identifying the Stocks You Want to Purchase
Select the stock or stocks you want to buy.Remember, you're investing in a company. Be sure to pick a great company that has a proven track record of performance over the years and has the potential for continued growth.
- Look at the chart of the company's stock price. It should show a distinct, upward trend over the long-term. Remember that DRIPS are long-term investments even more so than standard stocks. That's because you can buy stocks at the price you want when you want. However, you buy DRIPs based on a schedule. You could get unlucky enough that your DRIP shares are frequently purchased when the stock price is near a high. That's why you should approach DRIP investing with the a time frame of building wealth over years or, better yet, decades.
- Look for a company that has a history of increasing its dividends. Remember, you're going to be buying new shares of stock with the dividends. Wouldn't it be great if those dividends increase over time so that you can buy even more shares?
- Look for a company that has a history of revenue growth over the years. Although not every single year is expected to be better than the previous one, the general trend should show that the company's revenue grows over time.
- Look for a company that's in a business you understand. If you're in pharmaceuticals, pick a pharmaceutical company. If you're in manufacturing, pick a manufacturing company. The advice of the great investor Peter Lynch still stands: buy what you know.
Ensure you have a balanced portfolio.You don't want all your eggs in one basket. If all of your DRIP stocks are from the same industry, and that industry experiences a recession, then your portfolio value could plummet. Be sure that you're properly diversified with stocks from different sectors.
Invest in DRIPs through your online brokerage account.Many of the major online brokerages allow you to do almost any type of investing, including DRIP investing. Just login to your brokerage account and use the search bar to search for "DRIPs". The search results should give you some articles and tutorials about how to enroll in DRIPs online.
Enroll in a DRIP program through a transfer agent.All of the companies that offer DRIPs use a transfer agent to administer the program. You'll need to get in touch with the transfer agent that handles DRIPs for the stock you want to purchase.
- An easy way to find the the transfer agent is to go to the "Investor Relations" or "Investors" section of the company website. For example, the "Investors" page of Abbott Laboratories has a "Dividend Reinvestment" link.. If you click that link, you'll be taken to a page that gives you information about the company's DRIP program.. You'll also see a link to computershare, the transfer agent responsible for administering the DRIP for Abbott Laboratories.Contact computerShare for more information about enrolling in that DRIP.
- You can alternatively just Google the company name plus the word "DRIP" to find the transfer agent. If you Google "Abbott Laboratories DRIP", you'll find the Computershare link right at the top.
Pay attention to fees.There are some fees associated with DRIP programs. You don't want excessive fees taking a bite out of your return on investment. You'll find that most of the fees are minimal, but check them out before you enroll just to be safe.
- The fees should be listed on the transfer agent's website. If not, give them a call and ask about the fee structure.
Prepare for taxes.Even though your dividend income is reinvested, it's still considered income for tax purposes. Be ready to pay taxes on what you've earned.
- At the beginning of the calendar year, you'll receive a 1099 form from each company that you're investing in. That form will provide you with the amount of income that you need to report.
QuestionI am not an American resident; can I own DRIPs?Top AnswererYes. In order to buy U.S. stocks (including DRIPs), any investor (including non-U.S. citizens) must first register with the Internal Revenue Service, because U.S.-based dividends are taxable by IRS.Thanks!
QuestionCan I buy a DRIP for my grandson?Top AnswererYes, as long as you can provide the issuing company a tax-identification number (like Social Security) for your grandson.Thanks!
QuestionWhen are earned DRIP funds used to purchase a stock?Top AnswererThanks!
QuestionDoes a Canadian have to pay USA income tax if living in Canada?Top AnswererIf you're a Canadian citizen living in Canada you shouldn't have to pay U.S. income tax. If you live more than half of the year in the U.S. you may, however. Speak with your accountant at income tax time.Thanks!
QuestionIs it a divided taxed if it is added to the principal each month?Top AnswererAll dividends that accumulate during a tax year are reported to the investor at year-end for taxation purposes.Thanks!
QuestionI live in The Netherlands. Is there a possibility to participate from that location?Top AnswererYes. Read this: Fool.com/knowledge-center/can-a-non-us-citizen-trade-us-stocks.aspx.Thanks!
- Dividends that are reinvested are considered taxable income. U.S. stockholders will receive a Form 1099 each year from either the brokerage company or the company issuing the stock.
- Scheduling automatic monthly investments is a convenient way to take advantage of "dollar-cost averaging." This technique is a proven way of maximizing portfolio growth over time and is recommended by most professional financial analysts.
Video: Make money faster. Dividends and DRIPs Explained
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